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Extra 750,000 people to pay 40% tax from April

 

Three quarters of a million people will start paying income tax at the higher rate when changes to the tax thresholds come into effect in April, a leading think-tank suggests.

 

The Institute for Fiscal Studies (IFS) claims that around 750,000 people will pay tax at 40% for the first time from 6 April, following the Government’s decision to lower the higher rate threshold from £37,400 to £35,001.

 

A further 850,000 individuals are expected to be drawn into the higher rate band by 2014, according to the IFS’s report.

 

The move is partly being offset by a £1,000 increase in the personal income tax allowance for the 2011/12 tax year, meaning that those aged under 65 will be able to earn £7,475 before paying tax. The Coalition hopes to raise the personal allowance to £10,000 by the next election.

 

In the report, James Browne, a senior research economist at the IFS, says: ‘While taking 500,000 out of tax altogether, the way that the Government has increased the personal allowance to ensure that higher rate taxpayers don't gain will increase the number of higher rate taxpayers by 750,000.’

 

However, a spokesman for the Treasury insisted the changes were necessary. ‘The Government has had to make tough choices but has always been clear those with the broadest shoulders should carry the greatest burden.’